what should i know about buying a business Archives - Page 21 of 29

Published November 18, 2019

Ready to buy your own business?

Step 1: Arranging Capital

You could probably guess that step one is figuring out how you are going to pay for your new venture.

If you don’t have enough cash on hand to fully fund the purchase of a business there are several resources available which you could tap. These options consist of acquiring funds from the Small Business Administration (SBA), traditional financial institutions like banks or seller financing.

No matter what the source of funds, any lender is going to have conditions which you will have to satisfy if you want to be approved for said funds. They are going to require you to have adequate cash readily available for a down payment in addition to having sufficient working capital to sustain the business.

You will need to be aware of and account for costs like closing fees. It is possible to either pay for the closing fees up front or plan to have them incorporated within the amount that you will be financing.

Having financing or at least a down payment in place before you begin your business search will simplify the process of finding the right business for you.

Step 2: Making Offers

You found a business that meets with your goals and have finished going over the initial financial records. You think this might be the business for you. It is time to make an offer, but how do you determine what that offer should be?

First, consult with your business broker. There are considerations that influence price such as the amount comparable businesses have actually sold for, the value of inventory and contracts, the amount of cash flow the business currently generates – the list goes on. By consulting with your business broker you can consider all aspects and decide whether the asking price is fair and how much you are willing to offer.

Step 3: Due Diligence

After an offer is accepted, the offer you submitted essentially becomes the purchase contract and you will move to the next stage – due diligence. This is a crucial step when purchasing a business. It is due diligence which enables you to figure out whether or not this business is for you. It also helps to determine what price you will be prepared to pay for it.

Due diligence will begin with examining previous years of financial records. You will be able to learn about any unresolved legal actions, relationships with vendors and clients, intellectual property rights including copyrights or patents, as well as any future liabilities.

Once you have all the necessary information you can make an informed decision about whether or not to proceed. This is the nature and necessity of due diligence. Your findings during due diligence may also modify the amount you are willing to pay for the business.

As soon as you have arrived at what you feel is a complete picture of the business and have also arrived at a price that takes into account what you found during due diligence – you and the seller will negotiate to amend the purchase contract and proceed to the closing table. This step typically requires using the expertise and negotiating skills of your business broker, and possibly a CPA and/or attorney to guide you through the process.

While buying a business might initially seem like a monumental task, when broken down into basic steps it is absolutely possible for any driven future entrepreneur.

Do you have more questions about the steps required to buy a business? Would you like to know more about the due diligence process? Ask us! Please feel free to leave any questions or comments, we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

Business Buyer 101: How Long Does It Take To Buy A Business?

Posted in Buyers Articles

Published November 11, 2019

For most businesses, the time on the market between listing and selling is in the neighborhood of 9 to 12 months. The typical time between an accepted purchase contract and the closing table is somewhere around 30 to 90 days. These industry stats might be helpful for a business seller, but if you are a buyer – what does the process of buying a business mean in terms of time frame? How long will it take a buyer to buy a business?

The answer is it depends. And it’s really complicated.

Yes, that’s a terrible answer, but it’s the truth. Here’s why:

It depends on the industry.

Like any market there are waves of popularity for specific types of businesses – and if the type of business you are looking for is a hot commodity, it might take you a while to get your hands on one. Great businesses in popular categories land under contract very quickly, so you might miss out on a few before you get lucky. What that means for time frame is a lot of waiting around for another shot.

It depends on what’s for sale.

You might have a specific type of business in mind, but within that category the current choices on the market may not hit enough of your criteria to warrant a purchase. Like the popular industry problem we just talked about, waiting for a business to come up for sale that fits what you want could take a while.

It depends on the complexities of the purchase contract.

Even if you luck out and get a business that suits your goals under contract, the length of time to get from accepted contract to closing varies from deal to deal. Some close quickly, in a month or so. Some contracts need to be negotiated for over a year. It depends on many, many factors and varies considerably from deal to deal. You may have many aspects of the purchase contract to negotiate or it may be very straightforward. The only way to know will be to get to this phase of the transaction and then to have some patience with the process.

It depends on the existence of financing.

If you aren’t paying all-cash for your new business (most people don’t), then the time frame can be prolonged because of financing issues. If you are working out a deal where seller financing is in the mix, that can add another layer to the negotiation process. If you are getting your funding through a more traditional lending institution or through the Small Business Administration (SBA), then the time table of that lender will also play into the mix.

It depends on the motivation of the buyer.

It can be really difficult to make a huge decision like the decision to buy a business, mostly because there is no such thing as the perfect business to buy. Many, many buyers (90%) enter the market and never buy anything. As such, looking at the average time it takes the full population of buyers to buy a business probably won’t be very helpful. You can also be extremely motivated and the business you’re hoping for just isn’t out there at the moment.

The point here is the length of time it takes you to find the right business and then reach a closing table isn’t as important as focusing on making sure the business you end up with fits your goals. It also isn’t as important as staying motivated and patient with the process. If owning a business really is in your future, you will be able to meet your goal.

Have more questions about the process to buy a business? Are you curious about what types of businesses are currently on the market? Use our Business Search tool by clicking here! Otherwise, feel free to leave any questions or comments and we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

Buying? What You Need To Know About Confidentiality

Posted in Buyers Articles

Published November 4, 2019

Buying a business is a big task, and there are many steps ahead of you that might seem ridiculous – but all are a necessary part of a successful business transaction.

The most important of these steps is the signing of confidentiality agreements and then keeping that confidentiality in place.

This can be a frustrating part of the process for buyers. The confidential nature of business sales means you can’t have all of the information you want the moment you want it – and you will have to sign non-disclosure agreements for each and every business you seriously consider, all without knowing very much about the business before you do.

Keeping the for-sale status of a business a closely-guarded secret is absolutely imperative for the health (and possibly survival) of the business. When people find out a business is for sale, they immediately assume the worst. A business for sale must be a business on the brink of ruin. Why would anyone sell a perfectly good business?

Well, there are a lot of reasons. Reaching retirement age, the desire to move to a new area, wanting to pursue a different business venture, reaching a pre-planned goal within a business initially purchased for the purpose growth and then a sale – all of these reasons mean a business is healthy, not failing.

In general, however, that false perception that a business for sale is a failing business can cause an enormous amount of havoc in an operating business. The entire staff can quit, customers can go elsewhere, contracts can be cancelled – all things that can severely affect the bottom line.

For you as a buyer, the confidential nature of business sales means you must sign non-disclosure agreements and you must abide by them. Period.

You can’t change the language of the agreement to remove the penalties for you if you break the agreement. Non-disclosure agreements come in a standard form used throughout the industry and are not open for negotiation. If buyers could change the agreement to remove the penalties for a disclosure, then there really isn’t any point in having non-disclosure agreements in the first place.

You also can’t tell anyone who is outside of the transaction that the business is for sale (like your mother-in-law, your neighbor, your golf buddies, etc.). The only people who should have access to any confidential information is the buyer, the seller, the brokers, CPAs and attorneys involved.

While the confidential nature of business sales might seem like a giant pain – you should consider it a great thing for you as a business buyer. Confidentiality means that the business you want to buy hasn’t been trashed by the careless disclosure of it’s for-sale status by a buyer that considered it before you did. You will get your new business intact and healthy.

Do you have questions about non-disclosure agreements or questions about the business buying process in general? Please feel free to contact us here or comment below. We would be happy to answer any questions you might have.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

The Efficient Business Buyer – Less Meetings, More Questions

Published October 28, 2019

Buying a business might seem like a monumental task – there’s paperwork, red tape, negotiations, money – but there are better ways to go about successfully completing a transaction than others.

One of the best ways you can be a more efficient business buyer? Ask questions.

Of course I’m going to ask questions! What do you mean?

The process to buy a business starts with looking at general listings and pairing down the list of possible businesses provided by your broker to just a few. For those few businesses, you will be asked to sign a nondisclosure agreement for confidentiality purposes – and then you will be forwarded a marketing package that typically includes information about the business, the physical location, a financial overview, pictures, etc.

At this point many new buyers ask for a meeting with the seller or for a tour of the location, but if all you’ve done is glance at the marketing package – then a meeting or tour will probably end up a total waste of your time. When you are buying a business, you are buying cash flow – so the seller’s personality or the location decor really aren’t that important.

Why?

The only way to figure out if a business is really right for you is to dig deeper than just a cursory glance, and you need to do that deep digging right from the start so you can eliminate businesses that aren’t right for your goals – sooner rather than later. The more efficient path? Take a really close look at the information you’ve been provided and come up with a list of questions you’d like answered.

What kinds of questions should I be asking?

Every business is different, so your questions from one business may or may not be the ones you have for another. Here are some general questions to get you started:

What are the seller’s daily duties? What would a typical work day look like for me as the new owner?

How is the income derived? Is it owner-to-prove? What do the tax returns and P&L statements show as far as how much the business makes?

What types of licenses are required for this business? Would I qualify for those licenses?

The moral of the story is any question is a good question, for a couple of reasons. First and foremost it will help you weed out businesses that won’t fit with your goals and expectations. Second, your questions will help your business broker understand what is important to you so they can better refine the search for potential businesses.

Save yourself a ton of time and energy by carefully reviewing information and asking lots of great questions – before you sit down with sellers and go for a back-of-the-house tour.

Are you a new buyer who has additional questions about the process to find the right business? Would you like more pointers on the best types of questions to ask? Ask us! Leave comments or questions here and we will be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

Burned Out? Ready To Buy A Business? Avoid The Steep Learning Curve

Posted in Become a Business Owner, Business Broker Why & How, Buyers Articles

Published October 21, 2019

You are completely burned out. You hate going to work everyday, and all you want to do is do something completely different. You are considering making the leap and buying your own business – with the intention of buying a business that is the exact opposite of what you currently do. This could be a monumentally bad idea.

When you daydream about owning your own business, it oftentimes involves a business or industry that is completely different than the business for which you currently work. This “grass is always greener” thought process can be disastrous if you use those daydreams to inform your decision on what type of business to buy.

Business ownership is tough, especially if it will be your first time as a small business owner.

Your transition into entrepreneurship will come with a huge learning curve, so it is almost always a mistake to add learning a whole new industry to the already enormous task of learning how to run a business.

Staying within your industry or within an industry where you already have some practical experience will likely be pivotal to your success. You will be able to handle the day to day operations of your business because it is similar to something you have already done in a professional capacity.

Notice that we said “similar”. You don’t have to buy a business exactly like the job you left in order to reap the rewards of staying within your industry. Many industry skills from one specific type of business will easily translate to another. You can also go to industries where you previously, but not currently, have experience. The point here is a car salesman who has never spent a single minute working in the restaurant industry shouldn’t buy a huge bar.

The other reason to stay within your industry? Landlords. Many new to the small business world don’t realize that the vast majority of businesses exist in a space that is rented from someone else. Commercial landlords want tenants who will succeed, and have seen plenty of inexperienced business owners tank their businesses and stop paying their rent. Any landlord is going to want your resume to see if you know what you are doing before they lease you the space. Someone with zero experience in the business they are trying to buy will be hard pressed to find a willing commercial property owner.

If the thought of spending one more moment in your current industry makes you nauseous, have a conversation with an experienced and qualified business broker. You might be surprised to find multiple businesses that are different enough from what you currently do to make you happy – that will also allow you to use the skills and experience you already have. Don’t let burn out destroy your chances for successful business ownership.

Have you thought about buying your own business, but don’t know what type would work for you? Would you like to see what businesses in the current market meet with your business ownership goals? Ask us! Please feel free to leave questions or comments and we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

Learning To Love The NDA – Thoughts For Business Buyers

Published October 14, 2019

If you are a business buyer, you should absolutely love the business transaction process – especially the tenant of confidentiality and the need to sign non-disclosure agreements (NDAs). Why? Let’s first talk about why some business buyers hate NDAs.

When you enter the market to buy a business, many new buyers assume the process will be very much like the process to buy a house. Nothing could be farther from the truth. Buying a business does NOT involve looking up businesses for sale and then driving around to look at them before you pick one to buy.

Why? When you buy a business you are buying an existing, operating business.

In order for that business to stay existing and operating the fact it is for sale needs to stay a closely guarded secret. Confidentiality is key.

A breach in confidentiality and the disclosure that a business is for sale can mean very bad things. People naturally assume a business that is for sale is a business that is on the brink of failure, although this is rarely true. When a business sale is disclosed the staff can quit en masse, vendors can cancel contracts, clients can go elsewhere – the list goes on.

These potentially catastrophic consequences mean anyone who is interested in buying a business must sign the NDA before the name and location of that particular business is disclosed. Some buyers hate this and refuse to sign the NDA or fight with brokers about providing their own information to receive the NDA.

The information you provide in order to sign the NDA for a particular business is both simple and straightforward. You must provide your full name, your home address, your phone number and your email. Why do we need this information? Why can’t you use your P.O. box or a business address instead of your home address? The NDA you are signing needs to be tied to one individual – you – so the same address you use on your driver’s licence must be used.

If you really feel uncomfortable providing this information, you should consider that your simple identifying information is paltry in comparison to what a business discloses to you once the NDA is signed. Not only will you now know the name and location of the business that is for sale, you will likely gain access to financial information as well.

You should also consider that the information you provide to get the NDA is the same information you would provide when signing up for a discount card at a grocery store. It’s really not a huge disclosure of personal information when you think about it.

So why should you love the NDA? The business transaction process, including the NDA, ensures that the business you end up buying hasn’t had a catastrophic disclosure of confidentiality by you or any other prospective buyer before you get handed the keys. It means your new business will transfer to you intact and still operational.

Still need convincing that the NDA is a great thing for you as a buyer? Do you have additional questions about the business buying process? Ask us! Please feel free to leave questions or comments here and we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

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Keep It Together – How A Business Buyer Can Help

Posted in Become a Business Owner, Business Broker Why & How, Buyers Articles

Published October 7, 2019

Business transactions are complicated beasts, and as such they fall apart more readily than they stay together.

If you are looking at buying a business, you will need to do your part to keep your deal together if you ever hope to make the jump to business ownership.

How? By making sure you know what you want and what’s ahead of you.

Are you really, really sure that you want to buy a business? Small businesses are very rewarding ventures, but they are intense in terms of the time and effort that you will need to invest. Are you sure you want to make the move from a 9 to 5 job with two weeks of paid vacation to a life where the buck stops with you? Yes, small business owners decide what hours they work – but the hours necessary can be very long.

Do you have realistic expectations? Buying a business is absolutely nothing like buying a house, and it takes a lot of time and patience. It also requires many, many moving parts and a good deal of negotiation. Talk to your business broker about what the process will be like so you know what to expect.

Have you done your homework? Do you have the background and experience to own the type of business you are considering? It is far easier to buy a business in an industry where you have some practical experience because you will already know something about how the business is run. If you are trying to enter a completely new industry, you might give yourself an incredibly steep learning curve the moment you take over as owner.

Are you being honest about the funds you have available? Some new buyers assume that they will be able to finance most of the price of a business, or they think they will be able to negotiate for a rock bottom price. Neither of these notions are true. You have to be realistic about what the money you have available will get you, and you need to be upfront when asked to prove your financial capacity. Trying to pretend you have more that you do will absolutely blow up in your face and cause your deal to fall apart.

Are you prepared to be very, very patient? Like we’ve said before, the process to buy a business requires a lot of patience. There are contracts to put together and negotiate, licenses and permits that need to be obtained, meetings, conference calls – the list can be seemingly endless. There are also a lot of people involved – busy people like the brokers, the seller, attorneys, CPAs. Requests for documentation or finalizing of agreements can take a lot of time, so you need to remain patient with everyone involved if you want the deal done.

Do you have questions about the business buying process? Would you like to know what industries would be right for you? Ask us! Leave comments or questions here and we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

Buying A Business? Why A Terrible Business Seller Isn’t A Bad Thing

Posted in Become a Business Owner, Business Broker Why & How, Buyers Articles

Published September 30, 2019

If you’re new to the process of buying a business, you might wonder why business brokers exist. Can’t reasonable buyers and sellers get together and get a transaction all the way to the closing table?

The reality of the business game is there is very little chance of success when buyers and sellers go it alone. Why? Buyers and sellers don’t buy and sell businesses for a living.

If you are in the market for a business, then the person you most want sitting across from you at the closing table isn’t a seller at all. You want a business owner instead.

A business owner is someone who cares about the business they are selling. Their top priority isn’t how fast they can get out the door – it’s their bottom line. A business owner is focused on growth and getting the most money possible for their successful small business.

A business seller, on the other hand, is a temporary title. It involves gathering and assembling documentation and information about the business, being available to answer questions or requests and negotiation skills.

Someone who is a successful small business owner will not necessarily make a great and/or cooperative seller because selling isn’t their focus and it’s something they’ve never done before.

This is where the role of a business broker is critical and patience on your part as a buyer is a must. The person on the other side of the table isn’t a professional business seller, they are a professional business owner.

If it takes some time to have questions answered or get requested documents you shouldn’t be frustrated, you should be glad that they are focused on the running of the business you are about to buy. A business owner who doesn’t care about the day-to-day operation of their business could potentially be leaving you with a disaster the day you get handed the keys.

Your business broker is there to ensure the process goes smoothly, to keep the lines of communication open and apply the right amount of motivation to a seller so that they can both successfully run and sell their business. Have patience with the process – and with the business owner across the table.

Are you considering buying a business but have more questions about how the process works? Would you like to know how long it typically takes to get to a closing table? Ask us! Please leave questions or comments here and we will be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

Tips for Business Buyers: The Negotiation

Posted in Business Broker Why & How, Buyers Articles

Published September 23, 2019

If you are thinking about buying a business, then you probably already know that one major step on your path will be the negotiation of a purchase price and the negotiation of the purchase contract.

If you’ve ever been involved with the purchase of a house or a car, then you already know a little bit about how the negotiation phase is going to go. A buyer offers a price, the seller counters – and after a bit of back and forth the deal is done.

The major difference with business sales? There will be many, many more moving parts.

The best way to deal with these moving parts is to prepare yourself for the negotiation process:

Find and use a business broker

Buying a business is no small task. There are large amounts of money changing hands, a purchase contract that needs to be drafted and negotiated, licensing and permitting requirements that must be met, a new commercial lease that must be negotiated – the list goes on. A business buyer will be far better off with an experienced adviser by their side – and your broker also acts as an all-important buffer between you and the seller. Asking the wrong kind of question, asking too many questions, coming in too low with an offer – all of these things can offend a seller. By using an intermediary like a broker you can keep the deal moving while simultaneously keeping the other side of the negotiating table happy.

Make your offer realistic

You absolutely don’t want to overpay for your new business, and you want to keep as much of your cash as possible to ensure you have enough working capital the day you take over as owner – but that doesn’t mean you should insult the seller by offering a rock-bottom price. Unless the business is listed as an asset sale, don’t treat it like one. An operating business is so much more than the depreciated value of the equipment and inventory. You need to remember that to the seller this business is a huge deal. Most sellers are very emotionally attached to their businesses because the business has been an enormous part of their life. Low-balling a seller will almost assuredly offend them – some to the point where they will refuse to work with you. Make your initial offer fair and be able to justify that number when asked.

As a side note, if you are a buyer who is making an all-cash offer, you may be in a better spot to negotiate for a lower price than someone who is looking for seller financing to be a part of the deal. If you do need seller financing, consider the situation from the seller’s point of view. You probably wouldn’t give someone a big discount on the purchase price of your business if you were going to be taking a big risk and financing part of the deal.

Be 100% prepared for compromise

One last and very important point to make regarding negotiations – the final purchase price and purchase contract will be a compromise for both sides. Go into this process understanding the reality that you are not going to get everything that you want, no matter what side of the table you are on. Many deals have died because one side (or both) refused to budge over something tiny, like the value of a piece of equipment or the closing date. Stay calm, patient and willing to compromise if you want to have a chance of reaching the closing table.

Are you considering buying a business but have more questions about the negotiating process? Would you like to know what types of businesses are currently out there in your price range? Ask us! Please feel free to leave comments or questions here and we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

The Toxic Myth Of The Perfect Business – How To Handle Messy Books

Published September 16, 2019

It is a very common complaint in the world of business sales. A buyer comes to the market with money in hand and ready to buy the right business – but every time they request financial documentation what they get is poorly assembled numbers, difficult to understand tax returns and no current financials of any kind.

Do they want to sell their business or not?

What you have to remember about the small business world is owning your own business is a tough and time-intensive enterprise. Small business owners are great at what they do, but most are not trained accountants. Many times record keeping and financial documentation fall down the priority list, and what a buyer is left with is what the seller was able put together in the short time the business has been listed.

When we take on a listing for a small business we often get handed nothing more than a big box of crumpled papers and register tapes – and have to figure out the numbers from there. This is not true of all small businesses, as some owners are better record keepers than others – but you have to remember that even a great business may not have the world’s most organized books.

It is also typically true that the larger the business is, the more likely it is that they have an accountant on payroll and therefore the more complete the records will be – but if you are in the market for a small business you probably don’t have the couple of million dollars you would need to buy one of these higher-priced and more-complete-records businesses.

What should I do then? How can I decide with seemingly incomplete records?

Have patience, and understand that you will never get perfectly organized books. What you will get is the opportunity to look at all of the financial records of a business once you have entered the due diligence phase. Your business broker will be there to help you, and if the books really are a mess then perhaps an accountant familiar with business transactions will be brought in.

What you can do as a buyer is use that not-so-pretty cursory information you get with your first requests – like P&L statements and tax returns – to weed out businesses that don’t suit you and focus a more thorough look on on the ones that do.

Are you in the market to buy a business, but are disappointed with the information you’ve been sent so far? Would you like to know more about how we as brokers turn that jumbled box of paperwork into use-able numbers? Please feel free to leave any questions or comments here, we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907